Operator: Good day, and welcome to PFG's Fiscal Year Q3 2022 Earnings Conference Call. . I would now like to turn the call over to Bill Marshall, Vice President of Investor Relations for PFG. Please go ahead, sir.

Bill Marshall: Thank you and good morning.

We're here with George L. Holm, PFG's CEO and James Hope, PFG's CFO. We issued a press release regarding our 2022 fiscal third quarter in first nine months results this morning, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the same period in our 2021 fiscal third quarter. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items.

The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call, and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release in our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George. George L.

Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. I'm pleased to speak with you this morning to share another stellar quarter for PFG, as business results across our organization continue to outpace our expectations. Our fiscal third quarter results were once again boosted by success in the independent restaurant channel, steady business wins in the convenience space and consistent improvement in Vistar 's channels. We're also pleased with the notable improvement of business experience in cost of labor due to declining temporary headcount.

Our journey to become a unique leader across a variety of channels and product offerings continues. At the end of June, we were hosting Investor Day at the Core-Mark offices in Westlake, Texas. That meeting will provide an opportunity to have a deep discussion on PFG's strategic direction, including the collaboration being achieved across our three segments. We're excited to show you the Core-Mark facilities and give you an opportunity to hear from our leadership team. PFG 's clear vision is already producing results as new business wins in Convenience Foodservice and Vistar are being achieved with the breadth and depth of products and services our company can offer a range of customers.

Each of our companies has worked hard to expand our addressable market while maintaining our commitment to existing lines of business. The result is a powerful story of organic success, augmented with strategic expansion and can do lines of business drive long-term sales, and adjusted EBITDA growth. As you can see from our fiscal third quarter results, we have solid momentum along this path, posting net sales at the top end of our guidance range and higher-than-anticipated adjusted EBITDA margins. Top-line results in April have been consistently strong. This has allowed us to increase our outlook for the full year and we now believe $1 billion of the adjusted EBITDA is possible for fiscal 2022, even with just 10 months of Core-Mark 's results.

This morning, I will discuss a few notable areas that drove the success and then James will add some financial color. We'll close by taking your questions. Starting with our Foodservice segment, strong sales in EBITDA growth were led by independent case growth. Total independent organic cases were up 13.7% in the quarter as we continue to win business. In fact, in the quarter, we added approximately 4,500 new independent accounts and the number of active independent accounts increased by double-digit percentage compared to the third quarter of last year.

This was a significant acceleration from the second quarter. We also saw record levels of performance, brand penetration within independents. Another important driver of margin expansion and EBITDA growth for our broadline business. Our differentiated high-quality brands continue to provide great growth. As restaurant operators is up to provide quality to consumers particularly during the time of high inflation.

We began to integrate merchants which we acquired at the very end of the calendar year. Well, merchants will take a few quarters to build to a full run rate of EBITDA contribution. We're very pleased with the early integration progress and believe this will prove to be another excellent acquisition for our company. Before moving onto our Convenience segment, I want to speak to the inflation situation. As you know, inflation has been persistent throughout the fiscal year and accelerated in the third quarter.

In fact, our Foodservice segment experienced nearly 20% key costs inflation in the quarter, taking sequentially higher compared to the prior two quarters. We're encouraged by the fact that we've been able to pass along these higher costs, and just not seem to resulting in significant demand destruction. Consumers appear willing to accept the higher menu prices, particularly as inflation is broad and not disproportionately impacting food away from home. Still this is something to closely monitor across the next few months and quarters. Moving onto our Convenience segment.

When we closed the Core-Mark transaction, we had high expectations and expected quick progress not only on integration, but for a new business opportunity. I'm very pleased to say that our expectations have been met and even exceeded in many ways. You can see this play out in our sales and EBITDA progress for the Convenience segment. We described a few instances of new wins in the Convenience arena. We have begun to shift to these new accounts and early progress is encouraging.

We're also excited that new opportunities arise regularly, due to the strong pipeline of new business that we expect to add over the coming quarters and years. As our pipeline of new business grows, we expect to see margins in the Convenience segment improve. There are many factors underpinning this improvement, including early synergy capture and tight cost control management. There are also healthy signs of growth in the food and foodservice area within Convenience. As one enterprise PFG can provide products and services that we believe will make us a preferred supplier to the Convenience operator.

Our ability to provide expanded food product selection and cost efficiencies along with our expertise in the food space, are few of our many strategic advantages. We strongly believe that our umbrella platform gives us a leg up compared to the competition in the Convenience arena. To provide insight into our Convenience -- to our strategy, we are providing additional information, showcasing sales progress. To achieve this, we have identified two distinct buckets of products. Then we sell into the C-store channel through Core-Mark Eby-Brown, and Foodservice businesses.

The first bucket is food, Foodservice and related products, and the second is nicotine products. Our definition of food Foodservice from related products includes all fresh foods and packaged goods, including candy, snacks, beverages, coffee, as well as any food-related packaging or equipment. Essentially, these products reflect everything we saw the convenience customers excluding our tobacco products, this sales may be captured within the Convenience segment or within the Foodservice segment, depending on which operating company makes the delivery. The second category, nicotine products, encompasses our cigarettes, smokeless, date, oral nicotine and other tobacco related products. Only our convenience operating companies delivered tobacco products.

As we've discussed in the past, our focus is growing the food, Foodservice and related product categories into Convenience, which we believe will be a significant driver of sales profit and shareholder value derived from the Core-Mark transaction. In the fiscal third quarter net sales from food, Foodservice and related products increased approximately 21.5%. This is compared to a 1.9% decline in our nicotine product sales. This produced a positive product mix for PFG. As you can tell, we are extremely pleased with the quick progress we have made in the Convenience space.

This could not be possible without a smooth integration process, which has continued to track on or in some cases ahead of expectations. We're excited to share a deeper look into our Convenience strategy at the Core-Mark headquarters in late June. This will be an opportunity for the investment community to engage with our leadership across the organization and see the strong collaboration we have fostered among all our segments. Finally, a few words on our Vistar business, which has made significant strides over the past several quarters, and is well on its way toward a full recovery. Over the past several quarters, we have discussed how discharge recovery would likely be slower than the rest of our business due to exposure to the hardest hit channels that we serve.

While that is largely played out, we are encouraged by the recent progress, particularly in the theater business. We're also optimistic that a slow return to work trend could provide a tailwind to our office coffee business in the months ahead. With that said, the office landscape will likely look different in the future and we need to adapt to the new structure of the work environment. As markets continue to improve, the inflationary environment has also helped to start the achieved sales and profit growth. In fact, for the last two quarters, the start's EBIDTA margin has held steady and approximately in line with peak pre -pandemic levels.

They're also a number of exciting growth opportunities at Vistar, including the retail automation network we have highlighted in the past. Operations at our three facilities are fully open and continue to bring on new customers. We are pleased to report that in recent months, each of the facilities has achieved mid to high-single-digit EBITDA margins. A rate of profit improvement that is outpacing our original expectations. We believe this bodes extremely well for the long-term potential of this initiative.

Our long-term outlook for Vistar is very positive as legacy channels are showing a clear path to recovery and new lines of business for nicely adding to our sales and profit growth. Before turning it over to James, I wanted to touch on our ESG program, which has been an important initiative for our organization. During the fiscal third quarter, we published our second annual ESG report and for the first time, set long-term goals for our company. This included objectives to reduce power consumption intensity by 20% increased the diversion rate for operational waste by 80%. An increased purchase with women, veteran, and minority owned businesses by 25%, all by the year 2030.

Furthermore, in April, we announced the introduction of 10 net zero emission refrigerated trailers to our fleet at our Gilroy, California distribution center. Steps like this for important progress in our company's ongoing journey towards being an ESG leader in our industry. To summarize, all three of our operating segments have made significant progress over the past three months and maintain strong momentum into the spring and summer. We have managed the labor market well, which is after margin profile and ease some supply chain challenges, which has allowed us to improve our service levels to customers. Our independent restaurant business posted double-digit organic case growth, increasing market share, and driving profit growth.

Our Convenience business has exceeded our high expectations with a smooth integration and steady business wins. And this star has shown steady improvement and is generating high margins, which should continue to be a tailwind to our earnings growth going forward. I'd now like to turn it over to James, who will review our financial position and earnings results in more detail. James.

James Hope: Thank you, George.

And good morning, everyone. As George discussed earlier, our business results have continued to improve, which continues to solidify our financial position. This morning, I'd like to discuss our cash flow and balance sheet positioning before turning to a brief overview of our business results and discussion of the operating environment. I'll finish with our updated guidance, and then we'll be happy to take your questions. PFG experienced strong operating cash flow and free cash flow in the fiscal third quarter in the first nine months.

Operating cash flow over the first nine months of the fiscal year was about $391 billion as we generated approximately $237 million of operating cash flow in the fiscal third quarter. Improvements in working capital added to our strong underlying profit performance. Our free cash flow, which we define as cash generated from operation less CapEx, was about $250 million over the first nine months and was about $165 million in the fiscal third quarter. We used additional cash flow to pay down our ABL and closed the quarter with approximately $4.2 billion of total debt, including finance lease exposure at a weighted average interest expense of 3.9%. Total company leverage is now 4.2 times our trailing 12-month adjusted EBITDA, including Core-Mark for the entire period.

We are committed to paying down our debt in the absence of strategic M&A opportunities. Our total liquidity position remains strong at $2.4 billion. We believe that our liquidity provides plenty of flexibility to invest in the business at attractive financing levels. With that, let's quickly review some highlights from our fiscal third-quarter business performance. As a reminder, last quarter we increased our reporting segments from two to three, now reporting on Food service, Convenience and Vistar.

At a total PFG enterprise level, net sales increased 82% in the quarter to $13.1 billion driven by the addition of Core-Mark, inflation, and a continued recovery in the business environment. Total case volume increased 35.3% in the third quarter and was up 8.3%, excluding the contribution from Core-Mark and Merchants. Organic independent cases increased 13.7% in the fiscal third quarter as we continue to see solid momentum in our independent business. Total PFG gross profit increased 61.6% compared to the prior year quarter, including the addition of the Core-Mark business and the independent case growth which I just mentioned. Core-Mark contributed $243 million in gross profit during the fiscal Third Quarter.

Food cost inflation continued to move higher in the quarter. Our weighted cost inflation was 13.6% up sequentially, as we continued to experience double-digit increase in our Food Service commodities, Food Service segment, food cost inflation approached 20% in the fiscal third quarter. We have continued to successfully pass along these increases. Gross profit per case was up about $1million in the third quarter compared to the prior year period. We continue to make progress on the labor front and our efforts to reduce temporary and contract workers.

As we disclosed in the press release this morning, our temporary contract labor costs increased $16 million compared to the prior year period, which includes both direct, contract labor costs, and associated travel costs. This was another sequential step-down compared to the prior quarter when contract labor costs were up $34 million over the prior year. As we've discussed through the year, we will not see the full benefit of those cost reductions immediately as the reduction in temporary workers is largely replaced by full-time associates. However, over time, we should realize savings from these initiatives as full-time worker productivity increases. We're pleased to see consistent improvement in labor situation today.

Though we expect the pace of lower temporary labor costs to begin to flatten as we reached a steady-state of operations. And the third quarter PFG reported net income of $23.4 million adjusted EBITDA increased 96.3% to $237.9 million. Diluted earnings per share was about $0.15 in the third quarter, while adjusted diluted earnings per share was $0.51, our EPS results were impacted by a higher tax rate compared to the second quarter, mostly due to a decrease in deductible discrete items related to stock-based compensation. Based on our strong third quarter results and positive outlook for the fourth quarter, today we adjusted our full-year guidance. We are raising the bottom end of our full-year sales guidance by $500 million and now look for total net sales to be in a $50.5 billion to $51 billion range.

For adjusted EBITDA, we are raising the top and bottom end of the range and now anticipate $990 million to $1 billion. A $20 million increase on the bottom end, and $10 million increase on the top end compared to our prior guidance. In summary, we are extremely pleased with our quarterly and year-to-date financial results. We posted a strong quarter and we expect the momentum to continue in the fourth quarter. This is reflected in a better outlook for our full-year guidance, particularly on adjusted EBITDA, showing our strong commitment to margin improvement.

Our company is positioned to build on our strength driven by our consistent focus on our existing customer base while adding high-profit new accounts across channels. The Core-Mark integration has proceeded very well, both culturally and from a business perspective. Our balance sheet remains strong, providing flexibility to invest in value-creating projects to drive organic growth. We believe these factors will allow us to achieve our three main objectives. Sustained profitable sales growth, EBITDA margin expansion, and debt pay down.

We appreciate your interest in Performance Food Group, and with that, we'd be happy to take your questions.

Operator: And we'll take our first from Alex Slagle with Jefferies Financial Group Inc.

Alex Slagle: Good Morning. Thanks. On the guide into the recent Convenience Foodservice sales trends and other non-cigarette categories, and it looks like it was very strong in the quarter overall.

I'm just curious how they're impacted by the higher fuel cost, if you have any more recent observations of how the C-store operators are responding to perhaps any change in consumer habits with the elevated gas prices in the convenience world?
George L. Holm: Yes, this is George. Typically, what people have experienced that are in the Convenience business, is when fuel is high it tends to have a negative impact on the consumption or officiousness of nicotine products, but not so much the other items. Many people, when they go to fuel -- to get fuel, they don't fill their tank, they have nearby $20 million or $30 million. They have their number of fuel and they tend to then go to convenience stores more frequently, and that frequency tends to help in some of the food areas, particularly the more competitively priced areas.

Alex Slagle: Interesting. Thanks. And then, just on inflation, following up with those. Do you see anything into the fiscal fourth-quarter? Any pockets of sequential softening on inflation and just an idea of what you're baking into your expectations in the sales estimate?

James Hope: Well, yeah. This is James.

Well, overall, we expect and we planned for continued inflation. Our organization is prepared to handle it. We believe we've done a very good job, and our team across the organization has done a very good job managing through inflation. So we think we'll continue to see it at the product level. Then, we'll continue to see it at the operating cost level.

Something similar to what we've seen in Q3. Well, there may be signs that we could see shortly when it begins to abate, but I don't think that that will be material.

Alex Slagle: Got it. Thank you.

Operator: And we will take our next question from Jake Bartlett with Truist Securities.

Your line is open.

Jake Bartlett: Thanks for taking the questions. My first was just on the staffing situation the use of temporary labor coming on those related costs. Can you talk about how close you are now to newer kind of pre -COVID kind of normal levels of staffing, maybe represents kind of -- that you have to improve to? How you gauge how you're far -- how far you are back to normal?

James Hope: In general, we are definitely trending towards being back to normal and we'd expect that to occur towards the very end of Q4. It's consistent with what we had expected and hoped for when we started the fiscal year and talked about it in Q1 and first disclosed their information early on in the year.

So regard operators have done an exceptional job and everyone in the supply chain in learning how to manage through this difficult time, and now they've gotten it to where we're in a much better shape and the outlook that we have for the future is very upbeat on that front. We saw -- also start to see slight improvements in overtime. I want to be thoughtful in that comment. Our supply chain is still working very, very hard. It's not an easy time for them and the work they're doing is impressive.

So we see that number coming down and we expect it to continue, but it's -- as it gets closer to steady-state, it's just not going to be able to improve as much as it has been, the pace of improvement will moderate.

Jake Bartlett: Right. That's helpful. My next question is just on the Chaining business. I know -- maybe you're not , but I know as of last the call you're running behind the prior year.

You mentioned that you had a non -- a large funnel of potential new business, but were just careful not to add -- add accounts until you had a better understanding of your cost structure. I'm wondering how that looks today, whether you're potentially going to be more aggressive or in a position to be in terms of trying to get incremental Chain business. George L. Holm: Well, we continue to have problems in some markets from service level standpoint. What would have been really encouraging for us is that we see nice increase in our number of customers where we got service levels back to pre - COVID levels.

As far as the national account part goes, we're still running and in cases behind 2019, where last year we did surpass 2019 and independent and this year we've built on that increase from last year. We're not in a position yet. We're going to be real aggressive to get that type of business. Our day will come when our service levels are better. Also, we're in such a high inflationary period of time and we've been able to hold pretty steady with margins because of the change in our mix of business.

As we've continued to grow our independent faster and the Convenience business, we've continued to grow the independent faster. And also obviously huge difference between our areas of concentration in the food areas versus nicotine. When it comes to Vistar, we really have made great strides from the service standpoint. Our margins in the help once again by mix as the lower gross margin area, as is office coffee driven a lot by just the total case price of the product. So, no.

We feel real comfortable around our sales growth number right now. April was an exceptionally strong month for us. So I think that we'll continue along the path that we are on. Our service levels are really in place. We have a great feel for what our costs to do business will be in the future.

We'll get more aggressive from a national accounts standpoint.

Jake Bartlett: Great. Thank you very much.

Operator: We will take our next question from John Heinbockel with Guggenheim Partners. Your line is open.

John Heinbockel: I want to start with the 22% increase in the C-store food revenue. How organic is that? Meaning, sort of being helped by, still, recovery from COVID and chunky new business. What do you think is a good sustainable growth rate longer-term? The high-single-digit is that doable? And then --
George L. Holm: First of all, it's all organic from the standpoint that we have the proforma Core-Mark numbers in that previous year number. I'm not real comfortable about if that is that sustainable or not? Obviously, we've got some good early wins.

I don't see any reason why we can't continue to get some good wins, but I think we're probably a few quarters away from being able to get any guidance as to what's sustainable in that food area.

John Heinbockel: The forward thing, right, C-store, part of the biggest focus for them inside the box. One of the biggest focuses is prepared food, right? Some of them to a good job, many of them don't. When you think about your ability, right to message your expertise and actually begin to impact their business. How do you think that will take a right in terms of product development and your marketing, your capabilities?
George L.

Holm: I think we've already done a good job as far as product development goes, we certainly have some voids. We learned a lot. It is a different Foodservice market than a restaurant. Actually, some of our early wins on these turnkey type programs were more Foodservice customers and those kitchens and new places like that but we learned a lot. I think we're ready to go there.

I think it comes down to our ability to market the product and making these decisions which seem to be different for every account will surprise as to where we deliver that product from. But I think we are offering is more important our levels competitiveness to quality of it than where we deliver it from. We're learning as we go along and that's part of, John, why we're so encouraged, because we are learning a lot where we're making a mistake here in there and yet we're doing very well.

John Heinbockel: And then just lastly, you're not yet seeing any impact on demand from inflation. You have been -- You've done this a long time, George.

Do you have any thought when that might materialize? And I know the pizza Italian business held up really well during COVID for a lot of reasons. Is there anything you're seeing that would suggest people may be shifting from higher-cost to -- higher-cost dining out to lower-cost or not yet?
George L. Holm: I've not seen that yet. I'm not, needless to say, a frequent dine out person and I'm seeing the higher-end in steakhouses appear to be doing really well. With pizza, we were certainly down from the growth standpoint this last quarter from where we had been.

I was starting to develop a little bit of concern with it, with still high-single-digit case growth. But then I looked at the big three when they put their numbers out, the big three pizza chains, and they were somewhere between 6% negative and 1.9% positive from the same-store sales standpoint. And then we get some limited reporting on share, it doesn't include a lot of the specialty guys. So maybe it's not as accurate as some other parts of the business. But our share gains were actually better than they had been in the past at lower growth, so that does show me there's a little bit of pizzas critique out there, there are a lot of other options for people dining out.

We just have not seen any demand destruction. And you made the comment I've been at it a long time, and I have, but I've never quite seen this type of situation. I do have a little bit of a concern that menu price increases have not caught up with what our customers have experienced from price increases, but it just doesn't seem like anything really impacts the consumer today. First, I go so far, John, as to say that the bigger issue we have right now is staffing at the restaurant level, where they just don't take enough reservations for filling the restaurant because of their concern about being able to service the customer.

John Heinbockel: Thank you.

George L. Holm: Thanks John.

Operator: And we'll take our next question from Edward Kelly with Wells Fargo & Company. Your line is open.

Edward Kelly: Hi, guys.

Good morning. George, you mentioned an exceptionally strong April. I was hoping they could you provide just a bit more color on what you're seeing currently, including maybe some detail on customer type. And is there a way to frame it from like a number standpoint? I mean, are you now running above 2019 in total organic case volumes? And then just thoughts on like early May and into the summer. I mean, it does seem like there's some recent for optimism is things like travel pick up.

George L. Holm: Yes, I'll give you some high level. We don't want to start giving current numbers. It's probably not the right thing for us to do it on. We just saw sequentially things got better in the third quarter.

Particularly when you take into account just channel differences and just change in mix of business that each area of our business improved. And we've seen that continue into the month of April just starts had a couple of record weeks Foodservice, we've been having record sales weeks, so we're very encouraged.

Edward Kelly: Okay. And then, a follow-up, I guess, probably for James. James, you mentioned some of the temporary costs, the over a $100 million this year rolling off.

But you do have new hires coming in. There is -- over time should improve. I mean, the OpEx situation is complicated. But as we look out into fiscal '23, is there a way that you can help us all frame that? I assume you don't want to just taken OpEx down by the temporary costs, it sounds like, but what happens from an OpEx per case perspective? How do we think about that in '23 given all the puts and takes?

James Hope: Thanks for the question. Certainly not in a position to give OpEx guidance for 2023.

We will give a lot more information about the business at our upcoming Investor Day in late June. But I think there are some things to think about, and if you remember, labor is by far the majority of our OpEx. Labor has been one of the largest pressure points, obviously, that we felt across the last probably two years. And now we're starting to see trends improve both in tenth labor as we've reported on, as well as I mentioned overtime beginning to improve. And as those two things get better, just the natural progression of the supply chain starts to improve.

It becomes more efficient, more accurate. We'll see less mistakes. We will see less damage and the safety will improve. So it's a very good question. I think I'll leave my answer as that and really look forward to talking to everyone at Investor Day.

Edward Kelly: Okay. Great. Thanks, guys. George L. Holm: Thanks, Edward.

Operator: We will take our next question from Mark Carden with UBS Securities. Your line is open.

Mark Carden: Good morning. Thanks a lot for taking my questions. So to start, just in terms of the recovery.

In some of the harder hit COVID markets, are you still trending much below your historical volumes? And then how much of a leg to growth could this potentially be?
George L. Holm: Well, I will tell you, I look close every week at how many cases for shipping out of each of the OpCo versus 2019. It's the best comparison that we can kind of grab. And many of our companies passed that last year. The ones that didn't tended to be a good bit behind those levels.

That's where we're really improving as you would expect, that versus last year, at the fastest rate at those markets that we're really late to recover. And most of those markets have now surpassed 2019 for independent case growth. And when I say most, it's -- there's two or three that didn't for the week. That's typically a lot, so we feel like we're there. It's widespread and great to see.

Mark Carden: And then what's the higher fuel prices? How much protection do you guys have in place throughout the surcharges into your hedges? And then how does this compare across your different business units? Is Convenience treated differently? Thanks. George L. Holm: Yes, I will ask -- I want to answer on the Convenience let me turn it over to James. We're really looking at best practices very closely. Core-Mark versus Eby and how they approach the marketplace.

And the leaders of those two businesses have worked extremely well together as we expected to see. And they have found kind of some common ground on what to put in place as a fuel surcharge. So we've made some great improvements in the Convenience area as far as to how much of the increase in fuel that we can capture. We've always done a good job in the other areas and I'll let James to comment on that.

James Hope: Yeah, for any distributor fuel is a meaningful piece of the operating expense.

And we have two ways that we mitigate increases in fuel prices. First, is the fuel surcharge program to include in customer contracts covers about 2/3 of our fuel consumption and that allows us to pass along price increases to consumers relatively quickly and fairly. The other is our fuel color program and that covers about 1/3 of our fuel consumption and provides protection from spikes in geo -prices, we will have some exposure of until the cap on the collar. But we're protected on the high end of the collar and we're clearly starting to see the benefit from those fuel collars that we put it in deploy. So we're really happy with how that's protected us somewhat.

So at both of these programs in points we've mitigated good portion of the effort moved in fuel prices, and there's a little bit of a lag and we've mentioned that before and all that's come in to pass.

Mark Carden: Makes sense. Thanks so much, and good luck, guys.

James Hope: Thanks.

Operator: We will take our next question from John Glass with Morgan Stanley.

Your line is open.

John Glass: Thanks very much. My question is on your Foodservice supply chain. First, what do fill rates look like now? Are you still sort of down versus prior? Can you also talked a little bit about your inflation rate, maybe, versus your peers? Everyone's running hot. Yours seems to be higher than others ' in the Foodservice business.

Is there a specific reason for that? Maybe saw inflation later, maybe it's the mix of products. And what are you doing with your vendors to maybe help mitigate that inflation? Is there anything that can be done?
George L. Holm: I'm sorry. Could you ask that first question again? You broke up a little bit here. on inflation.

John Glass: The first one is simply on your fill rates to your customers. How is your supply from your vendors gone such that you are in a wage of fill rate to your existing customers in the Foodservice business, please?
George L. Holm: Yeah. We are seeing constant improvement in our inbound fill rates from our suppliers, and I think that the supply chain is getting back on its feet again. And we're typically in about that 95% range inbound, so we're real pleased there.

I will add that in our Vistar world and our Convenience world, that is not the case. That's -- It's still running in the seventies and much more difficult. As far as our inflation difference maybe versus people that we can pick in parts of our business, when it comes to Food service, I think that part of it is we have -- real outsized percentage of our business is in poultry. We supply a lot of the large chains in the country that are heavy or all chicken. We also do exceptionally well in our independent business in poultry, and that has that much higher rates of inflation.

We also have a very large pizza business and anything wheat related is up significantly in price. We sell a lot of flour and we sell a lot of dough balls, we sell a lot of pizza crust. So that's had an outsized effect on us. And I would say just center of the plate in general, we're growing faster in that area of our business than we are other areas of our business. And that's really having an impact on our inflation rates.

John Glass: Thank you. Your largest competitors making a big push into independent restaurants, particularly certain cuisines where you've historically had strong market share. Are they starting to show up more often as a competitor, you've seen that impact or is its market so large that is not an influence or impact on your business today?
George L. Holm: Well, I think it's really large market will start with that. It's a huge market actually.

And our competitive is the really pretty much the same as it has always been. And they are big and they are strong and they are tough and there was have been and I would imagine they will grow big.

John Glass: Thank you.

Operator: Take our next question from Kelly Bania with BMO Capital Markets your line is open.

Kelly Bania: Hi, good morning.

Thanks for taking our questions. We just wanted to ask about synergies here we have mapped your pro forma earnings power with core and Reinhart, with your synergies that you expected out about a billion dollars and you're basically saying you're going to be there this year. So I guess this question is, can you update us on where you are with those synergies that you outlined originally, how much you think will be kind of in the run rate by the end of this year. And how much is left for future years. George L.

Holm: Well, I'm going to comment on what we're doing there, and then I'll turn it over to James to give some -- maybe some high-level numbers. We progressed from the synergy standpoint much faster with Core-Mark and EV than we have with Reinhart. And the biggest reasons for that is the businesses are very similar. The skill base is very similar. The structure, different, but as I mentioned earlier, the two leaders of those two businesses have just done a great job of lining things up such that in some areas, we've approached the business the way EV did, and some areas, we've approached the business the way that Core-Mark.

But they're very similar businesses, and we've been able to make some quick progress there. On Reinhart front, the skill base is very different. We have synergies that were probably at least a year, maybe two years, away from even making the moves to get those synergies. Reason being our skill base is very different, Number 1. Number 2, overlap of great deal and getting ground broke, and getting permitting, and getting a new warehouse built is a very long process.

So we don't want to give up any capacity at all, physical capacity. So we've continued to overlap what's obviously, additional expense from a cheap distribution cost when you do that. But the Reinhart business has improved so much, so quick, their growth is running at such a great rate right now, there just isn't any reason to go in and really disrupt the business. And l thinks when you get good growth and earnings because of the performance of the business, I think that is more important than trying to grab synergies at any quicker rate than the business itself can handle it. And I think right now, there's just no reason to disrupt.

We've done a great job of getting the synergies that we feel were appropriate to get, but I think the synergies in the Reinhart Performance Foodservice combination have continued to benefit this company for 2-3 years in the future. James?

James Hope: Yes, I think George 's answer was actually right on, and I'll only add a little bit of color because I thought that answer was exactly the way I think it should have described. I'll speak to both Reinhart and Core-Mark at the same time. I would

say this: because the Reinhart organization that we acquired and brought over and the Core-Mark organization leadership team, etc., that we brought over, because both of those groups are working so well with our existing organization that the integration work is right on track, but probably a little ahead of schedule in both and gone really well, very pleased to see integration, especially back off integration do so, and from a synergy perspective, from a financial synergy perspective, with their right on track with our expectations and what we had talked about for both of those.

Kelly Bania: Okay.

That's very, very helpful. And just maybe to follow-up, I think maybe James, it was you that made the comment about being committed to paying down debt in the absence of strategic opportunities. And maybe you just help us understand where your head is at that in terms of additional strategic opportunities. You have enough on plate with -- with Core and Reinhart. I mean, it sounds like you're going well, but what are you seeing out there? Are you actively -- really evaluating opportunities? Maybe just any comments there?

James Hope: Yeah.

First regarding to what's on our plate, I want to be really clear with this. We have a very strong and robust balance sheet. Our liquidity is exceptionally strong and we're really pleased with the financial ability that we have from that perspective. So we're in very good shape from a balance sheet perspective, from a bandwidth perspective the Core-Mark and Performance Food Group team, which is now one team, have, as I mentioned, done a very good job with integration. That's honest path.

And I think from a bandwidth perspective on the convenience side of the business we're starting to develop additional bandwidth and so things are freeing up there on the broad line or Foodservice side of the business. Reinhart organization is fairly well integrated into Foodservice, so we have integration bandwidth there as well. So we have liquidity, financial capacity, and the strength to integrate another acquisition. That leaves us with acquisition opportunities, the strategic opportunities. We will be very selective and strategic in what we would target.

And at this point, at this moment in time, I don't see that opportunity presenting itself, but I think I'll ask George to comment on further . George L. Holm: Yeah, we are always going to be offering as opportunistic, and if something came along to be that really fit, another Reinhart would be -- type company would be fantastic, we would jump through hoops to get it down and get it down for right valuation. But right now we're pretty serious about paying down debt. Now with some of the minor restructuring that we've done, Pat Hagerty, that used to day-to-day run our Vistar business, is very experienced in the M &A area and he's got a heavy concentration on that right now, and he tends to get things done.

So I think you'll see us do some things, but they're not going to be real large. They're not going to be far from what we're good at and what we feel is our future. But there's some things that we need to get done to give ourselves some better capabilities particularly in the Convenience business, and to a degree in the Vistar business. We mentioned the three retail automated facilities that we have and we would like to have more of those and we'd like to have more capability there. And at this point, we've done all that from an organic standpoint, but that's an area that we would like to get better at.

And I think we'll be -- you'll get a better feel by coming to our Investor Day as to where we're headed with our different businesses. And thanks.

Kelly Bania: Thank you.

Operator: Thank you. We will take our next question from Lauren Silberman with Credit Suisse Group.

Your line is open.

Lauren Silberman: Thank you for the question. So it seems like you guys are having a lot of success pushing through inflation. What are you watching to see whether you might decide to delay pushing through the full inflation that you're seeing?
George L. Holm: Well, I mean, I would comment

on this: the world is cognizant -- really cognizant of the impact this inflation is doing on our customer.

And a great deal of our ability to keep our margins comparable to where they were before this just crazy inflation is a change in our mix of business. We were just really focused on the parts of our business where we have more to bring the customer, and we tend to be able to get a higher margin and be a good value form. And we're not trying to make sure that we continue with the same margin levels in Food Service business where you're running close to 20% inflation. We still have product areas that we price on a cent per pound. Obviously, you need to get a little bit more when you've got a lot of inflation, but we've done a great job in our gross profit per case.

I think the industry probably as a whole has done a great job there. But we're well concerned that our customer and, quite frankly, their customer sees too much inflation, and we don't want to see any disruption to demand. I talked about earlier. We just don't see it. I mean, it's remarkable that we just really haven't seen it all.

I do like our diversification. Should it become a problem, we have less inflation in our Convenience and our Vistar business? We have a sizable business with value stores where they tend to do well in an environment where the economy weakens. So far I just don't see anything that's going to slow down demand.

James Hope: Thank you, James. I want to answer that.

I agree, and we are managing inflation effectively. Now we have been for a while and I would expect us to manage it appropriately going forward. At the same time, we're intentionally focusing on growing cases in our most profitable lines of business, including independent restaurants, food and foodservice in the Convenience as George mentioned earlier, and high-margin Vistar channels, that the Vistar business is very important to us. We think this is going to continue to result in top-line and EBITDA growth, improving our margins and drug shareholder value. We've got inflation, we understand it.

We believe we know how to manage it and we'll continue. And we've got our focus on the right things.

Lauren Silberman: Great. Thank you for that. Out of the independent case growth, can you just talk about the composition of growth in terms of the magnitude coming from new customer acquisition versus wallet share, whether that's more balanced this quarter?
George L.

Holm: Yes, our penetration in existing accounts -- there have been accounts that we sold this year and we sold last year, continues to run at the highest levels we've ever run at. And I think that part of that is there are less restaurants. If you're open, you do a good job, you staff properly, you're going to be doing significantly more business from a previous year. That has waned some and particularly in our pizza channel, because they were less options a year ago and they were doing it exceptionally well. That's why I'm so pleased that we were still high single-digit case growth, very, very pleasing.

As far as new business. That's a little bit that's much more very trust, based on our level of the service we've had in the markets. As I mentioned earlier, I'm very encouraged that where we are staffed properly and we're servicing our customers well, we're growing well into double-digit our number of new accounts over the previous year. And I do believe that in the future quarters, it's the new business that's going to drive our growth much more so than further penetration within existing accounts.

Lauren Silberman: Thank you, guys so much.

Operator: We'll take our next question from Andrew P. Wolf with CL King & Associates, your line is open. Andrew P. Wolf: Hi. Can you hear me on this phone?
George L.

Holm: Yes
Andrew P. Wolf: Okay. Great. It's what -- the last question, the 4500 new independent customers, is that -- I haven't heard that metric before. Could you compare that to a pre - COVID period or any kind of -- I mean, is that a kind of a breakthrough number for you? And I know you said it's a little lumpy based on your service levels.

George L. Holm: Yeah, it is a breakthrough number for us right now. 4,000 was always a big hurdle for us. And we're doing it really without it being very wide spreads. So that's an encouraging one.

I think accounts are starting to open back up with new ownership. I think that probably is helping us as well, but I think the bulk of that is by going out and selling an existing restaurant that we haven't sold before. Andrew P. Wolf: And is there anything in the market that's changed? I mean, are -- is it -- are there less small competitors, or is it just more -- what PFG is doing in terms of your own sales process?
George L. Holm: I don't think there's a big change in the marketplace.

I guess the only thing I would say is it seems like smaller distributors have cut back on their geographic area. So they may have gone 150 miles to another metro market before, and they aren't now. But even that's not real widespread. I think the marketplace just -- it is what it is. Andrew P.

Wolf: And just a quick housekeeping probably, I think, for James. I think there was other income of a little over $11 million in the quarter. Was that related to holding gains at Core-Mark or is there something else in there?

James Hope: No, that's just benefit from fuel hedges and derivative accounting. That's where that gain goes, when I talked about the fuel collars. We're very pleased and encouraged by the effectiveness of that program and it's been very helpful, and so the benefit is recorded in
Andrew P.

Wolf: Alright, thank you.

Operator: So let's take a follow-up question from Edward Kelly with Wells Fargo & Company. Your line is open.

Edward Kelly: Hey, guys, thanks for taking the follow-up. Just a couple quick things for you.

One on fuel. James, you just mentioned that the hedges are in other but then the cost of the rising fuel cost is actually segment OpEx. So is the EBITDA -- I guess is understated because you're not including the offset there. And then just over time, how do we think about the impact of higher fuel costs as hedges roll off?

James Hope: So we still -- the first one, first comment, I'm going to leave it alone, that was a comment that was direct and we're following GAAP accounting under a derivative accounting. On the second part, yes.

As we see, fuel continue to go up, we will continue to be very strategic in how we place hedges and acquire collars and invest in those. There could of course, potentially be some erosion in the benefit, but not projecting that right now. And we'll just have to manage that over time.

Edward Kelly: Okay. And then George, just one quick follow-up for you.

You had mentioned on the C-store business and how sales are being allocated either between the Convenience segment or the Foodservice segment. Does this potentially hurt the optics around how we looked at Foodservice sales, meaning like there could be Foodservice sales that are now included in the Convenience segment. I'm just wondering because people do look at those segments and I'm just curious as to if there's sort of like number shipment around there?
George L. Holm: The reason that we want to give the numbers out that way is just, number one, we will show the strength of our food business in convenience. And number two, we do expect the nicotine category to be one that erodes over time, and we've always been a company that pride ourselves in our sales growth and that portion of our business.

We're not going to have that sales growth. What we're doing when we have an independent convenience store and that's shift from Performance Foodservice that goes into independent sales for Foodservice. But when we report the food part of our business for convenience, it will also be in there so that we can show what the growth is in that food category within convenience. If it's a national accounts and we bring in the food program and it's done out of Performance Food Service. It will show up in our national business and Performance Foodservice, but it will also show up in our food business within Convenience.

, did you get that, okay?
Andrew P. Wolf: Yes. Yes. That makes sense. All right.

Thanks, guys. George L. Holm: Thanks, Edward.

Operator: And we will take our next question from William Brooder with Bank of America Merrill Lynch International Limited. Your line is open.

Mary

Ann Dickson: Hi, this is Mary Ann Dickson for . Thanks for taking our question. Confirmatory, are you still targeting leverage in that 2.5-3.5 times range? And if so, do you have any sense for when you may get to that range?

James Hope: First, yes. I've got a sweet-spot from a leverage perspective and where do we like to operate at, so a large acquisition is 2.5 to 3.5 times. We have not provided guidance on when we would achieve that.

However, we did clearly say and we continue to believe that's very important for us to pay down debt. We're very focused on that and we will continue to make sure that's an important investment for us with our free cash flows to pay down debt. Mary

Ann Dickson: Alright. That's helpful. And I know you mentioned that sell rate for Convenience and Vistar remain challenged, but has there been any subsequential improvement or are you expecting any improvement there?
George L.

Holm: We have seen sequential improvement. It's slow. And I will -- I don't want to get too complicated here, but it's a hard number to figure because there are items that the suppliers have elected not to produced during this period of time, and the customer is ordering them with every order that they put through. So our fill rates versus, say, the expectation of the customer, that expectation is -- of what they're getting maybe better than what our fill rates show. But the improvement that we're seeing is very slow improvement.

And if you think about it, it's pretty logical. I mean, our Food Service business, a lot of what we sell its center of the plate cheese. I mean, they're basically one or two ingredient items. So as long as that one or two items are available, then they have the product. When you get into our Core-Mark and Vistar business, most of what we sell there has multiple ingredients, so there's multiple chances of that ingredient not being available.

So the fill rates are -- the availability is less, and the other thing I would add to that is particularly going through the tougher COVID periods when they couldn't fill demand of retail and say a CPG type supplier. And they had 15 flavors of an item, they would take it down to five or six, so they didn't have to change out the lines as often. They could produce more product because they were selling everything they could produce and many of them today still selling everything they can produce. They're just not going to offer the type of variety, and our customer will continue to order those items that are not being produced today. Long answer, but I think that gives you a better understanding.

Mary

Ann Dickson: That's helpful. Thanks very

much
Operator: We will take our next question from Joshua Long with Piper Sandler Companies, your line is open.

Joshua Long: Great. Thank you for taking the question. Wanted to circle back to inflation piece and maybe see if you guys can talked about a couple of the tool sets or platform, or maybe some of the value-creating investments that you alluded to in terms of being able to manage inflation, but also pass along value to your end customers.

Maybe within the context of the private label opportunity. George L. Holm: But our performance brands. We continue in legacy performance companies to run in that little bit over 50% range and continues to grow of our business. And I'd tell you, Reinhart 's improving like there are in everything they're improving at a fast rate and that they will probably make it there as well.

And we do feel like that gives a better value to our customer we focused heavily on our brand. We're also real conscious that it's something else is a better price value for our customer we certainly don't mind selling that. It fits in really well. We're not spending a lot of time trying to change what the customer does use. Certainly, if they come to us and they want something that's more competitive, we will show them every offering that we have.

But for the most part, we're just trying to be real consistent and encouraging the customer to get higher menu prices as supposed to affecting the cost of goods.

Joshua Long: Thank you.

Operator: We will take our last question from Jeffrey Bernstein with Barclays. Your line is open.

Jeffrey Bernstein: Great.

Thank you very much. I will follow up on the market share opportunity. I feel like if we look back in three years, it would seem like the period post COVID would be such a huge opportunity. Just wondering if you can prioritize where you think that would come from, whether it's picking up new accounts or further penetrating existing accounts or M&A of smaller competitors or perhaps just closures of those competitors? Just get a sense of whether you believe this would be an outsized period of market share gains and where you think a way to prioritize that's coming from?
George L. Holm: A lot of that is market share gains with some information that we get were the several months after the first shelter in place came, and we're probably right now still a little bit better than we've done the past.

We haven't been able to get these numbers for a long time. But I think that new accounts are going to be the biggest way in which we can gain share. It's just such a big market for so many accounts and there's so many accounts that we don't sell. I think it's just an inevitability but if we're going to grow, that's how we're going to grow.

Jeffrey Bernstein: and just on the inflation front, like you mentioned, is approaching 20%.

I'm just wondering, I mean, how long is that sustainable? You would think as you lap the difficult compares store in the summer that's naturally even, without spot prices easing, you could see a significant pullback on that inflation level. Is that fair to assume that we see a significant pullback in coming quarters, or are there reasons to believe that spot prices are accelerating, and therefore, we could be talking about 15% to 20% inflation even in the back-half of calendar '22 and into '23?
George L. Holm: I feel like there's going to be less sequential inflation than there has been but I will tell you I've been feeling that for a while and it has happened. It's been incredibly stubborn, the inflation that we have. But what I see is I feel the supply chain starting to come together, and it's really finally tuned, particularly when it comes to perishable product.

And its labor based, it's ingredient based, and that's what we're seeing, we're seeing definite improvement in the supply chain and in some of those efficiencies, I think led to a good bit of the inflation. We do here of late, a lot of problems that have to do with the Ukraine, Russia area products where they're significant part of what the world consumes. That's not a huge assortment of products. But I think that could continue to go up, but I just have the feeling that sequentially we're going to see less.

Jeffrey Bernstein: Understood to .

It's safe to say that labor you would say would follow the same trajectory. Staffing getting better maybe overtime easing, turnovers easing should we assume in coming quarters that again, maybe it's taking longer than you would've expected, but we're now looking at 100
George L. Holm: We're hopeful and we are seeing improvement in most of the markets, not all, but most of the markets with labor, and I do think that's a big part of the inflation.

Jeffrey Bernstein: Understood. Thank you.

Operator: We have no further questions on the line at this time. I will turn the program back over to Bill Marshall.

Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.

Operator: This concludes today's conference.

Thank you for your participation. You may disconnect at anytime, and have a wonderful day.